CLIENT TALKING POINTS
Strong Dollar
Thanks to back-to-back weeks of declining initial jobless claims, the US Dollar and the 10-Year US Treasury yield both are ripping. Those are both very strong pro-growth signals domestically. Being long Treasurys (or utilities for that matter) are two of the worst places you could have put your money since May 1.
Burning Yen
The yen fell to a four-year low against the US dollar this morning. According to our proprietary multi-factor model, the yen has burned a whole all the to TRADE oversold with its rapid decline against the dollar. The Nikkei’s moving the other direction – up 2.9% overnight, up 41.6% so far this year. Welcome to the world of Central Planning and systematic devaluation of your country’s currency.
TOP LONG IDEAS
IGT
Decent earnings visibility, stabilized market share, and aggressive share repurchases should keep a floor on the stock. Near-term earnings, potentially big orders from Oregon and South Dakota, and news of proliferating gaming domestically could provide near term catalysts for a stock that trades at only 11x EPS. We believe that multiple is unsustainably low – and management likely agrees given the buyback – for a company with the balance sheet and strong cash flow as IGT. Given private equity’s interest in WMS (they lost out to SGMS) – a company similar to IGT that unlike IGT generates little free cash – we wouldn’t rule out a privatizing transaction to realize the inherent value in this company.
WWW
WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow.
FDX
With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.
Asset Allocation
| CASH | 28% | US EQUITIES | 18% | |
| INTL EQUITIES | 18% | COMMODITIES | 0% | |
| FIXED INCOME | 6% | INTL CURRENCIES | 30% |
THREE FOR THE ROAD
TWEET OF THE DAY
“The spire of 1 World Trade Center has been put into place making it the tallest building in the western hemisphere.” --@ITVnews
QUOTE OF THE DAY
“Kites rise highest against the wind – not with it.” – Winston Churchill
STAT OF THE DAY
101.20, the level hit this morning by the Yen versus the US Dollar, its lowest level in four years